Mayor Menino delivering his State of the City address on Tuesday evening: Photo courtesy the Mayor's Office.

With the city facing as much as a $140 million shortfall, Mayor Thomas Menino asked for Boston's unions to agree to a one-year wage freeze.

Menino said the move, expected to save $55 million, will enable him to "protect core services for residents and preserve jobs." The line was greeted with applause at Faneuil Hall, where he gave his annual State of the City speech.

"I know this will be hard on working families, but the way I see it, a one-year wage freeze beats core service reductions and painful layoffs," he said Tuesday night.

City councillors and state lawmakers who attended the speech said it was likely one of the harder ones the 15-year mayor has had to deliver, as economic forecasts have grown grimmer. Others said Menino should have outlined the problems more and offered more solutions.

Local aid could be cut up to 10 percent in the coming fiscal year and lawmakers debated this week whether to give Gov. Deval Patrick the authority to cut up to a $1 billion in the state's out-of-whack budget.

Menino also focused on more positive aspects of his administration, including the city's prevention of 450 foreclosures over the last two years.

Menino pointed to his Foreclosure Intervention Team, which bought 12 foreclosed units in the Hendry Street neighborhood.

"A year ago, in this four-block area in Dorchester, there were 16 foreclosed and abandoned properties," he said. "Today, there are three."

Menino also noted an 8 percent reduction in crime in 2008, and a cut in homicides the third year in a row. "We will improve on these gains in 2009, because protecting Boston's residents is my top priority," he said.

He touted the opening of new libraries in Grove Hall and Mattapan as well.

Menino did not announce whether he was running for another term. But City Hall watchers pointed to a line at the end of the speech, in which Menino said he would "continue to work tirelessly to move our city forward this year and in the years ahead."

"It was clear he's running for re-election," said Councilllor At-Large John Connolly. "That's as official an announcement as you're going to get."

"Sure sounded like it to me," added Councillor Maureen Feeney.

For his part, Menino, when asked about the speech, said, "I just did my job tonight."

Two potential mayoral contenders sat in the front row - At-Large Councillors Michael Flaherty and Sam Yoon.

Flaherty hit Menino on not pressuring the city's colleges and universities, which sit on tax-exempt property, to pay property taxes.

He also expressed wariness over the proposal to freeze union wages.

"We're asking them to put the brakes on their own individual households," he said.

Yoon called for longer-term planning in the budget. "We wouldn't expect a family to live paycheck to paycheck," and the city should not be working from "budget to budget," he said.

State Rep. Marty Walsh, a top union backer, called the wage freeze "interesting, as long as you can guarantee no layoffs."

Sam Tyler, head of the Boston Municipal Research Bureau, a watchdog group, noted that the wage freeze would only save $55 million. "Clearly, that's not enough," he said, predicting reductions in employee levels. Seventy-five percent of the city's $2 billion budget is tied to employee costs, he said.

Speaking with reporters afterwards, Menino said he couldn't promise the freeze would prevent layoffs. "It will reduce the impact" of the deficit, he said.

Feeney said the speech was "really a call to arms for all of us to maintain city services."

"I think we have to get everyone to the table and look at these numbers," she said of the wage freeze. Collective bargaining agreements are "sacrosanct," she said, and any wage freeze will likely have to be made up in future budgets.

Newly-elected City Council President Michael Ross said the speech hit the "right chord," and added that the wage freeze was a "good idea worthy of consideration."

"I think it was a somber speech," he said.

Menino was introduced by Moriah Smith, a high school senior from Dorchester and a student representative on the Boston School Committee.

Smith noted the budget problems facing the city and the school system, highlighted by protesting students outside the hall.

"Can we resolve it? Yes, we can," she said, borrowing from President-Elect Barack Obama's campaign slogan.